Letters of Advice are the way forward

Costs of advice will fall if advisers can provide clients with a succinct investment strategy document instead of lengthy Statements of Advice (SoA) documents, says Centrepoint Alliance’s Paul Cullen.

Last year, the Financial Service Council (FSC) lobbied to do away with mandatory SoAs in exchange for scalable Letters of Advice (LoA).

Speaking to Money Management, Centrepoint Alliance group executive advice, Paul Cullen, said the Australian Securities and Investments Commission (ASIC) had relied on a disclosure regime to protect consumers which had not always been effective.

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“Through the Government, [ASIC] have introduced a whole range of other consumer protection measures, but they're still left the disclosure regime in place,” he said.

“So you've still got advisers tussling to produce SoAs, which are exceptionally long, exceptionally complex, and the clients don't read them.”

Centrepoint Alliance, general manager licensees, Allison Dummett, said many of the principles in an SoA were already enshrined in the FASEA code of ethics.

“So for example, you don’t necessarily have to have a written document that shows product comparison, benefits lost and gained in the document itself,” she said.

“What you want to do is make sure that the adviser considers those things when giving the advice which is what the code obliges them to do.

Dummett, who was part of the LoA working group at the FSC, said while LoAs would not strip out all the costs of producing advice documents, it would make it a much better experience for the consumer.

“I’ve been around long enough that I remember when no advice documents were required – nobody advocates going back to that,” she said.

“That was a ridiculous state of affairs, clients deserve to have a record of what’s been discussed and something that they can make a decision on.

“If we can get a shorter document then that’s going to help everyone.”



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KPMG already ran the numbers on this. 'Letters of Advice' are estimated to take 16.8 hours per client. This is not acceptable. The FSC solution is designed to create the illusion of improvement, but maintain the problem with advice accessibility. They want to keep us shackled so they can push for intrafund expansion. The institutions' agenda has always been to remove advisers so they can go direct. We need to abolish advice documents all together. Despite the denial from FSC, this is what financial advisers are advocating for. We did the exam, we have the code, we have annual Opt-In - it's time for us to operate like every other professional.

Good idea particularly as the lengthy statements became boiler plate editions.

It's not ASIC or regulatory requirements that make SoAs lengthy - its the adviser or their licensee. Almost all SoAs are templated (for eg using an XPlan template) and advisers never consider whether the info in the template is relevant to the client and remove information that is not. Much easier to just to change the client name and amounts etc and produce the same 50 page rubbish (to justify a $2000 fee).

No matter how long or short the advice document is, or what its called, as an adviser I still need something that will stand up in court if a client complains. What price the PII then?

The most sensible and constructive strategy seen in a long time.
As long as the adviser can hold evidence on file that all REQUIRED measures have been addressed in the pre advice/ discussion / advice formation process, then the succinct and purposeful LoA should not only provide clear and concise information that the client will understand and feel comfortable about acting upon but will allow the adviser to produce client documentation and therefore outcomes at a much more efficient and streamlined time frame.
For the advice process to have been hijacked by over regulation and excessive duplication to the extent that it has been has resulted in no benefit to the consumer or advice community.
If there is no benefit then it is high time the process is changed as it has failed.
The end game is to produce concise, clear and understandable advice strategies that meets the clients goals and objectives.
Producing endless, multiple documents on a repetitive basis in volumes that overwhelm the client creates nothing more than cost, confusion and apprehension.
No one wants to make important decisions when they feel overwhelmed and vulnerable because the process is excessive.

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